New York City Comptroller Scott Scott Stringer is looking to loosen strict rules governing private-equity firms managing the city’s pensions – a potentially risky policy switch that claims it will improve returns, the Post said has learned.
Specifically, Stringer – a Democrat running for mayor in this year’s election – is urging the city’s pension trustees to lift a blanket rule Wednesday requiring private-equity firms to pay their bills Happens if they get into scrap with regulators or end up in litigation with investors, according to a memorandum obtained by The Post.
Adoption of the rule – which was imposed as a precaution in 2016 after big buyouts including Carlyle Group, Blackstone Group, KKR and TPG, forced to pay nearly $ 600 million to settle the civil collusion case Had gone, which could potentially upset taxpayers with millions. Of dollars in liabilities.
Indeed, city officials imposed the so-called “GP spending provision” after the Carlyle Group, headed by billionaire David Rubenstein, staked its own investors with more than $ 100 million in payments related to the collusion case in 2015.
Despite such concerns, Stringer argues that the rule has recently deprived pensions for promising deals with top-performing buyout firms for city employees, teachers, police and firefighters. According to a memo from deputy comptroller Alex Dono, three such deals last year totaled $ 843 million.
Silver Lake Partners, a Silicon Valley-based fund, terminated negotiations with the city last June to manage $ 313 million for New York City because of the rule. A month later, Nordic Capital and a co-investor pulled out of the $ 280 million deal. And in September, negotiations took place with Chicago-based Thoma Bravo to manage $ 250 million for city workers, according to the memo.
Silver Lake, Thoma Bravo and Nordic Capital all declined to comment.
“Each of these managers has given a first-quarter historical track record” and all funds were overburdened at the time, it was written. High-performance in-demand opportunities (and missed any future opportunities), have the potential to negatively affect in-demand managers [city pensions’] Ability to maximize risk-adjusted returns. ”
He said the city would impose sanctions in cases where a buyer’s “past behavior” suggests it would not be a good idea to take his legal risks.
In the Silver Lake case, the fund has been snatched, with several lawsuits over alleged inappropriate behavior. In 2014, Silver Lake agreed to pay $ 29.5 million for its role in the civilian cooperation suit, which prompted New York’s 2016 clampdown. Now, Silver Lake is being sued by investors in satellite operator Intelsat on charges of insider trading. Silver Lake has denied the allegations.
A spokesperson for Stringer said in a statement on Tuesday, “We are currently the only pension system with this specific strict requirement and the trustees are engaged in discussions about the effects of competition.” “As an assistant, controllers believe in keeping private-equity funds for their own wrongdoing and are working with trustees to ensure that we maintain the best possible investment for the fund.”
New York City, representing 584,000 members, has a total investment of $ 12.8 billion in pensions, according to a July report by the American Investment Council, a private-equity lobbying group. The report noted that it is the eighth largest investor in private equity funds among public pensions.
Nevertheless, the city’s pension managed to allocate 6.8 percent of its assets to private equity last fiscal year, missing the target of 8 percent, according to the city’s 2020 financial report. Despite the fact that the city expects PE to have an annualized rate of return of 11.2 percent, according to the report, that would be dwarfed by stocks or bonds.
Now, the city is increasing this year’s allocation for private equity by 40 percent to $ 5 billion, and Stringer said that competition to invest with top private-equity managers is increasing.
According to the memo, “With zero or negative interest rates around the world right now, more money is expected to flow into private markets and increase competition for allocation to stronger managers.”
There may be a way for New York City, however, to reach that goal without pressure from procurement companies, said Jordan Thomas, a partner at law firm Labaton Suchero who is a former assistant chief legal counsel for the Securities and Exchange Commission Division of enforcement.
“If I were New York City and I really cared about this, I’d go to CalPERS and join together,” Thomas said, referring to the California Public Employees Retirement System, the nation’s largest pension fund. “I think it’s remarkable, but they need some backup.”
“I think what New York City asked is not crazy,” Thomas said of the GP spending provision. “The most shocking thing about security laws is that if your investors agree, you can do bad things.”